Original copy compiled by:

1. Dr. Salwa Mahmood

2. Ts. Dr. Zuliazura Mohd Salleh

C2b: FACILITIES LAYOUT

AND MATERIALS
HANDLING
Ts. Dr. Nor Mazlana Main
Department of Mechanical Technology
Faculty of Mechanical & Manufacturing Engineering
Universiti Tun Hussein Onn Malaysia
Facilities Location

There are a number of techniques that are helpful in evaluating

location alternatives:

• Location breakeven analysis

• Minisum Model

• Transportation method

• Assignment technique

• Factor Rating, and

• The Center of Gravity Method

Techniques in evaluating location alternatives:

Location
Decision 1:
BREAK EVEN ANALYSIS
 Cost-Profit-Volume Analysis
Wh a t is Br e a k Eve n Break Even Analysis in economics, business, and cost
accounting refers to the point in which total cost and total
An a lys is ? revenue are equal.

For Break Even Analysis-Profit A break even point analysis is used to determine the
number of units or dollars of revenue needed to cover total
costs (fixed and variable costs).
Formula • The economic comparison of location alternatives is
facilitated by the use of this method.

• The analysis can be done numerically or graphically.

For cost analysis, the total cost are given as:

Total Cost = FC + VC(Q)

Where:
FC = Fixed Cost (land, property taxes, For quantity or volume analysis, the break even quantity are given as:
insurance, equipment, and building)
VC = Variable Cost per unit (e.g. labor, Bre a k eve n q u a n tity = Fixe d co sts / (Sa le s p rice p e r u n it – Va ria b le co st p e r u n it)
materials, transportation, and variable
overhead)
Where:
Q = Quantity or volume of output Sa le s p r ice p e r u n it is th e se llin g p rice (u n it se llin g p rice ) p e r u n it.
 Locational Cost-Profit-Volume Analysis
• The economic comparison of location alternatives is
facilitated by the use of this method.
The procedure for this analysis involves these steps:
• The analysis can be done numerically or graphically.
1. Determine the fixed and variable cost associated with each location alternatives.
2. Plot the total-cost lines for all location alternatives on the same graph. Total Cost = FC + VC(Q)
3. Determine which location will have the lowest total cost for the expected level of output (Q).
4. Fixed costs are constant for the range of probable output.
5. Variable costs are linear for the range of probable output.
6. The required level of output can be closely estimated. Assumption
1. Only one product is involved.
2. What have been produced are sold out.

3. Variable cost/unit is constant regardless of how many quantity

produced. (no discount etc if you buy in bulk)

4. Fixed cost remains unchanged when output quantity

changed.

5. Sale price is fixed regardless of sale quantity.

 Example 1:
Break-Even Analysis
Find the total cost and the optimal location by TC = FC + VC(Q)
using break-even analysis

Fixed Variable Costs Total Costs

Location Costs per Unit (Fixed + Variable)
per Year
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
for 20,000 units
Fixed Costs Variable Costs Total Costs
Location per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

VC(Q)
$62 (20,000) = $1,240,000
 Fixed Costs Variable Costs Total Costs
Location per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Costs
TC= $1,240,000 + $150,000

Fixed Costs Variable Costs Total Costs

Location per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000
B $300,000 $38 $1,060,000
C $500,000 $24 $ 980,000
D $600,000 $30 $1,200,000
 Fixed Costs Total Costs Total Cost = FC + VC(Q)
per Year (Fixed + Variable)
Location

A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000 for 20,000 units
D $600,000 $1,200,000

1600 1600
Annual cost (thousands of dollars)

Annual cost (thousands of dollars)

A
(20, 1390)
1400 1400
(20, 1200) D
1200 1200 (20, 1060) B
C
1000 1000
(20, 980)
800 800

600 600

400 400

200 200

0 0
2 4 6 8 10 12 14 16 18 20 22 2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units) Q (thousands of units)

 Fixed Costs Total Costs
Location per Year (Fixed + Variable) So,
A $150,000 $1,390,000 1. for 20,000 units, which
B $300,000 $1,060,000
C $500,000 $ 980,000 location is the best??
D $600,000 $1,200,000
2. For other Q?

Bre a k eve n q u a n tity = Fixe d co sts /

1600 (Sa le s p rice p e r u n it – Va ria b le co st p e r
Annual cost (thousands of dollars)

A
(20, 1390) u n it)
1400
(20, 1200) D
1200 (20, 1060) B
C
or
1000
(20, 980) Forecast using graph
800 Break-even point
600 Break-Even Quantities
Break-even
400
point (A) (B)
200 $150,000 + $62Q = $300,000 + $38Q
A best B best C best
0 Q = 6,250 units
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3 (B) (C)
Q (thousands of units) $300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units
 JOM CUBAAA

Break-even analysis example

Beth has dreams of opening a gourmet cupcake store. She does a break-even analysis to
determine how many cupcakes she’ll have to sell to break even on her investment. She’s
done the math, so she knows her fixed costs for one year are $10,000 and her variable cost
per unit is $.50. She’s done a competitor study and some other calculations and
determined her unit price to be $6.00.
Break-even analysis example

Beth has dreams of opening a gourmet cupcake store. She does a break-even analysis to
determine how many cupcakes she’ll have to sell to break even on her investment. She’s
done the math, so she knows her fixed costs for one year are $10,000 and her variable cost
per unit is $.50. She’s done a competitor study and some other calculations and
determined her unit price to be $6.00.
Techniques in evaluating location alternatives:

Location
Decision 2:

MINISUM MODEL
 Objective:
Minisum Model
To locate the new facility to minimize a weighted sum of the
rectilinear distances from the new facility to existing facilities
Background of Problem

To identify the optimum location

for new facility X, (x*,y*) that have
activity relationship with current
Cost function f(X):
facility Pi, ( ai, bi).

The optimum location must satisfy

the median and cost function f(X).
n
(
f (x, y ) = ∑ wi x − a i + y − bi
i=1
)

• Median ≥ ∑ wi (First time achieved)

2
 Minisum Model

EXAMPLE

A new machine will be fixed at shop Current m/c, Pi Coordinate, ai Coordinate, bi Number of
machine workshop. The five (5) (x) (y) trips,wi
location of the 1 1 1 5
current
2 5 2 6
machines are given as P1 (1,1), P2 3 2 8 2
(5,2), P3 (2,8), P4 (4,4) and P5 (8,6).
The 4 4 4 4
daily number of trips estimation (wi) 5 8 6 8
within new machine and current
machine are shown in table below: Total 25

Assume that, the costs per unit

movement are the same within both
machines. Determine the optimum
location for this new machine.
 Minisum Model STEP 1 : Arrange from lowest value to highest value for
coordinate ai (x)

Current Coordinate, Coordinate, Number of

m/c, Pi ai bi trips,wi
Single-facility minisum location
(x) (y)
problem
1 1 1 5
Procedure
2 5 2 6
1. Find x-coordinate: 3 2 8 2
 Order the facilities based on the 4 4 4 4
ascending order of their x-coordinates 5 8 6 8
 Calculate the Median of weights, wi Total 25
 Find the facility for which the
weights, wi l sum first equals or exceeds
one-half the total weight
 The x-coordinate of the new facility
will be the same as the x-coordinate of
this facility

2. Find y-coordinate
 Repeat the same for y-coordinate
Minisum Model
STEP 2 : Calculate the Median • Median ≥ ∑ wi (First time achieved)

2
Median ≥ ∑ wi
2
= 25= 12.5
2
STEP 3 : Match the coordinate ai (x) with the Median

Pi ai wi ∑ wj

1 1 5 5

3 2 2 7

4 4 4 11<12.5

2 5 6 17>12.5

5 8 8 25

x* = a2 = 5
 STEP 4 : Arrange from lowest value to highest value for coordinate bi (y), then follow
step 2- step 3 for coordinate bi (y).

Pi bi wi ∑ wj
Current Coordinat Coordinat Number
1 1 5 5 m/c, Pi e, ai e, bi of trips,wi
(x) (y)
2 2 6 11 < 12.5
1 1 1 5
4 4 4 15 > 12.5 2 5 2 6
5 6 8 23 3 2 8 2
4 4 4 4
3 8 2 25
5 8 6 8
Total 25
y* = b4 = 4

STEP 5 : Find the optimum location by take the value of ai (x) and bi (y)

Therefore the optimum location for new machine,

X(x*, y*) = (5,4)
Minisum Model
STEP 6 : Calculate the optimum cost for location found
Current Coordinate Coordinate Number of
The cost for this optimum location; m/c, Pi , ai , bi trips,wi
(x) (y)
f(5,4) = 5(I5-1I+I4-1I) + 6(I5-5I+I4-2I) 1 1 1 5
+ 2(I5-2I+I4-8I) + 4(I5-4I+I4-4I) 2 5 2 6
+ 8(I5-8I+I4-6I)
3 2 8 2
= 35+12+14+4+40
4 4 4 4
= 105
5 8 6 8
Total 25
 If the cost is RM1.50/distance, therefore the total cost for this
optimum location is RM 157.50 (105 x 1.50).

n
(
f (x, y ) = ∑ wi x − a i + y − bi
i=1
)
JOM CUBAAA
Techniques in evaluating location alternatives:

Location
Decision 3:

THE TRANSPORTATION MODEL

 The Transportation Figure 1:

Model The transportation problem

involves determining a
minimum-cost plan for shipping
from multiple sources to
• Involves finding the lowest-cost plan for multiple destination.
distributing stocks of goods or supplies from
multiple destinations that demand the goods.
Supply Demand

• Used to determine how to allocate the supplies Demand

available from the various factories to the

warehouses that stock or demand those goods,
in such way that total shipping cost is Demand

minimized.
Supply

Supply

Demand
 Example The Transportation
Cost to ship one
Model
unit from factory 1 Warehouse
to warehouse A
A B C D Supply

4 7 7 1 100
1 0
Factory 2 can
Factor 12 3 8 8 200
2 supply 200
y 0 units per period

8 10 16 5 150
3
0 Total supply
80 120 160 450 capacity per
90
Demand 0 0 0 period
0 450

Total demand
per period
 Transportation Method Setting up the
Initial Tableau
STEP 1: Create a row for each plant and a column for STEP 2: Add a column for plant capacities and a
each warehouse row for warehouse demand
STEP 3: Insert costs into the shipping route option
STEP 4: Insert costs into the shipping route
cells
option cells
JOM CUBAAA